Forward Premia and Risk Premia in a Simple Model of Exchange Rate Determination
AbstractThis paper develops the standard rational expectations model of exchange rate determination with risk premia taken as exogenous. The exchange rate is equal to a weighted sum of all future values of the fundamentals and risk premia. Specifically, if risk premia are percei ved to be temporary, then their levels are negatively associated with rates of appreciation. This finding is consistent in sign with the results from the conventional regression equation, but the theory indicates that to obtain unbiased estimates, errors-in-variables techniques must be employed. Plausible estimates for the money market parameters are found from Canadian data. Copyright 1988 by Ohio State University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 20 (1988)
Issue (Month): 4 (November)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Engel, Charles, 1996.
"The forward discount anomaly and the risk premium: A survey of recent evidence,"
Journal of Empirical Finance,
Elsevier, vol. 3(2), pages 123-192, June.
- Charles Engel, 1996. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc.
- Isaac, Alan G., 1998. "Risk premia and overshooting," Economics Letters, Elsevier, vol. 61(3), pages 359-364, December.
- Peter Rowland, . "Uncovered Interest Parity and the USD/COP Echange Rate," Borradores de Economia 227, Banco de la Republica de Colombia.
- John Pippenger, 1991. "Forward rates as predictors of future spot rates in small open economies: The case of Kuwait," Open Economies Review, Springer, vol. 2(2), pages 183-201, June.
- Alex Luiz Ferreira, 2004. "Leaning Against the Parity," Studies in Economics 0413, Department of Economics, University of Kent.
- Bennett T. McCallum, 1994.
"A Reconsideration of the Uncovered Interest Parity Relationship,"
NBER Working Papers
4113, National Bureau of Economic Research, Inc.
- McCallum, Bennett T., 1994. "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 105-132, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.